RBI tightens governance framework, redefines bank board responsibilities

Mumbai: The RBI has revised governance norms for banks boards, narrowing their role to strategy, risk oversight and corporate governance while empowering specialised board committees to handle a host of routine, operational matters.

The amendments, which come into effect from October 1, follow draft proposals released in April and are aimed at allowing directors to spend more time on long-term issues rather than operational approvals.

The move from RBI came weeks after boardroom tensions at HDFC Bank when earlier chairman Atanu Chakraborty resigned abruptly, citing practices at India’s most-valued lender not aligned with ‘personal values and ethics.’


His resignation caused severe value erosion in the stock of the lender. In feedback to draft guidelines, the RBI clarified that bank boards are free to decide on the mechanism for implementation of decisions taken in its meetings and no action taken report (ATR) is necessary.

The RBI also clarified that delegation must be strictly restricted to duly constituted board committees and specific sub-committees, explicitly excluding any transfer of core oversight functions to senior management. Under the revised directions, bank boards will primarily oversee risk management systems, exposures to related entities such as subsidiaries, and compliance with corporate governance standards.

Boards will also be responsible for setting the broad framework for matters requiring their approval, review or information, while periodically reviewing the effectiveness of powers delegated to committees and management. The RBI has also replaced multiple governance requirements spread across various circulars with a single principle-based framework specifying which matters must remain with boards and which may be delegated.

The proposal was first flagged by RBI governor Sanjay Malhotra in the April monetary policy meeting, he said, “the review of instructions, undertaken at the request of banks, will result in boards being able to divert more time to policy matters, leaving operational matters to the management.”

Policies on credit, investments, risk management, information technology, compliance, KYC, compensation and responsible business conduct will continue to require board approval. However, periodic reviews of these policies may be undertaken by board committees, with only material changes requiring approval from the full board, the latest amendments said.

The framework also permits committees such as the risk management committee, audit committee and asset liability committee to approve or review a range of operational matters, including annual audit plans, cyber security reviews, investment portfolio reviews, branch expansion plans, customer service reviews, liquidity reporting and monitoring of digital banking performance.